Washington To The Rescue. Now, About The Price...

Senate Foreign Relations Committee Chairman Jesse Helms (R-N.C.) wants Mexico to make illegal immigration a criminal offense before the U.S. shells out a dime of emergency aid. House Democratic Whip David E. Bonior of Michigan insists that Mexico boost wages and U.S. imports. And Patrick J. Buchanan wants the Mexican government to put the state oil company, Pemex, on the auction block.

All that sound and fury emanating from Washington has been sparked by the Clinton Administration's proposed $40 billion in loan guarantees to rescue the Mexican economy. Yet despite the vocal protests, a deal is falling into place--because the U.S. capital's premier power brokers have joined forces to see to that.

Even so, nailing down details of the plan is proving tough: Congress is demanding ironclad assurances that Mexico will pay stiff risk premiums and embark on stringent economic reforms before any U.S. taxpayer money is exposed. And lawmakers want the terms of the deal made explicit. But the Mexican negotiators, sensitive to domestic resentment of U.S. dominance, want to keep their concessions out of the pubic glare.

NEW WAVE. However the two sides handle the diplomatic cover, key elements of the package are emerging. The Mexicans will have to pay a fee of around 10% of guaranteed loans they draw on. By contrast, Israel paid a 4.5% premium for U.S. guarantees on loans to build housing for refugees from the former Soviet Union. The Mexicans also will have to pledge oil revenues as collateral. And U.S. officials expect Mexico to make deep cuts in government spending and sell off state-owned industries. "We don't want this to be a bargain for the Mexicans," says a U.S. official.

Although the conditions may be hard for the Mexicans to swallow, too much is at stake for either side to walk away from the financial crisis touched off by the sharp devaluation of the peso. Without a quick infusion of aid, Mexico's crisis would only worsen. For the Americans, that raises the prospect of a new wave of illegal immigration. Moreover, Mexico's economic failure would be a major strain on the North American Free Trade Agreement.

SCARY SCENARIO. That's why U.S. officials, including Treasury Secretary Robert E. Rubin and Federal Reserve Chairman Alan Greenspan, scrambled to put together the package. They quickly won support for the bailout plan from both House Speaker Newt Gingrich (R-Ga.) and Senate Majority Leader Bob Dole (R-Kan.).

The stiff terms will add to Mexican President Ernesto Zedillo Ponce de Len's political woes. Already unpopular, Zedillo is eager to avoid charges that he is turning Mexico into a U.S. colony. But neither can Mexicans afford to quibble over appearances. Mexico's banking system

is reeling from the devaluation and is likely to suffer further losses from the resulting

ECONOMIC SLOWDOWN. "Without an influx of dollars, the banking system is going to decompose," says Lawrence D. Krohn, chief Latin American strategist for Union Bank of Switzerland.

Visions of that scary scenario are what drove Mexican officials recently to press Washington for more aid above a previously announced, U.S.-led $18 billion international credit line that failed to calm the markets. No matter what the final terms of the deal, one thing already is clear: Mexico has reverted to its traditional role as a financial ward of the U.S.

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